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Test: Macro Economic Framework- 1 - B Com MCQ


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10 Questions MCQ Test Macro Economics - Test: Macro Economic Framework- 1

Test: Macro Economic Framework- 1 for B Com 2024 is part of Macro Economics preparation. The Test: Macro Economic Framework- 1 questions and answers have been prepared according to the B Com exam syllabus.The Test: Macro Economic Framework- 1 MCQs are made for B Com 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Macro Economic Framework- 1 below.
Solutions of Test: Macro Economic Framework- 1 questions in English are available as part of our Macro Economics for B Com & Test: Macro Economic Framework- 1 solutions in Hindi for Macro Economics course. Download more important topics, notes, lectures and mock test series for B Com Exam by signing up for free. Attempt Test: Macro Economic Framework- 1 | 10 questions in 10 minutes | Mock test for B Com preparation | Free important questions MCQ to study Macro Economics for B Com Exam | Download free PDF with solutions
Test: Macro Economic Framework- 1 - Question 1
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Marginal Efficiency of Capital (MEC) is defined as:

Detailed Solution for Test: Macro Economic Framework- 1 - Question 1
MEC represents the expected rate of return on an extra unit of capital investment. It is the rate of return anticipated from investing in a newly produced asset. This concept helps entrepreneurs decide whether to undertake a particular investment project based on its expected returns compared to its supply price.
Test: Macro Economic Framework- 1 - Question 2
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What is the primary factor that determines whether an investment project should be undertaken, according to Keynes?

Detailed Solution for Test: Macro Economic Framework- 1 - Question 2
Keynes suggested that the decision to invest in a project is based on comparing its Marginal Efficiency of Capital (MEC) with the market rate of interest. If MEC is higher than the interest rate, the investment would be considered favorable.
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Test: Macro Economic Framework- 1 - Question 3
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Which of the following factors affects the Marginal Efficiency of Capital (MEC) in the short run?

Detailed Solution for Test: Macro Economic Framework- 1 - Question 3
The current rate of investment in a specific industry can influence MEC. If an industry has already seen significant investment, the MEC for that industry may decrease due to diminishing returns.
Test: Macro Economic Framework- 1 - Question 4
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In the context of the LM curve, if the demand for money for transactions motive increases, what happens to the rate of interest?
Detailed Solution for Test: Macro Economic Framework- 1 - Question 4
An increase in the demand for money for transactions motive, due to higher income levels, would lead to a higher rate of interest in order to restore money market equilibrium.
Test: Macro Economic Framework- 1 - Question 5
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What is the relationship between the Marginal Efficiency of Capital (MEC) curve and investment in an asset, as described by Keynes?
Detailed Solution for Test: Macro Economic Framework- 1 - Question 5
According to Keynes, the Marginal Efficiency of Capital (MEC) curve is negatively sloped. As investment in an asset increases, the MEC progressively diminishes due to diminishing returns.
Test: Macro Economic Framework- 1 - Question 6
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In the IS-LM model, what causes the LM curve to shift to the right?
Detailed Solution for Test: Macro Economic Framework- 1 - Question 6
An increase in money demand shifts the LM curve to the left, as it leads to higher interest rates for a given level of income.
Test: Macro Economic Framework- 1 - Question 7
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What does the slope of the LM curve represent in the IS-LM model?
Detailed Solution for Test: Macro Economic Framework- 1 - Question 7
The slope of the LM curve reflects the responsiveness of money demand (liquidity preference) to changes in the rate of interest, which affects the equilibrium interest rate and income levels.
Test: Macro Economic Framework- 1 - Question 8
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Which of the following factors leads to a flatter LM curve in the IS-LM model?
Detailed Solution for Test: Macro Economic Framework- 1 - Question 8
A higher interest elasticity of money demand results in a flatter LM curve, indicating that changes in interest rates have a relatively larger impact on money demand.
Test: Macro Economic Framework- 1 - Question 9
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What happens to the LM curve when the money supply is increased, all else being equal?
Detailed Solution for Test: Macro Economic Framework- 1 - Question 9
An increase in the money supply, while holding other factors constant, causes the LM curve to shift to the right, resulting in lower interest rates for a given level of income.
Test: Macro Economic Framework- 1 - Question 10
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How does a decrease in the money demand function affect the LM curve in the IS-LM model?
Detailed Solution for Test: Macro Economic Framework- 1 - Question 10
A decrease in the money demand function lowers the amount of money demanded at a given interest rate and income level, causing the LM curve to shift to the right. This results in lower interest rates at the same income level.
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